Investor Mark Carnegie is pursuing a “reverse brain drain” strategy of buying innovative medical companies in America and turning them into Australian outfits that benefit from generous tax breaks for research and development.
Carnegie’s innovation fund has just closed the purchase of Simplify Medical for $2 million – the third acquisition of a US medical device company this year. Carnegie says the next deal is close, and there’s another target after that.
Simplify Medical, originally a South African startup before it moved to Seattle, has had $100 million in investment already.
Carnegie is a senior figure in the Australian investment community. He co-founded the boutique corporate advisory, venture capital and private equity firm Carnegie, Wylie & Co with John Wylie in 2000, which was acquired in seven years later by Wall Street bank Lazard Inc.
“The American health care medical devices industry is in such freefall that there [isn’t] anybody left with any money. There were three bids, all of them vulture buyers,” Carnegie told Business Insider.
“Because of the R&D tax concessions in Australia, we were able to a better deal and make the management team more enthusiastic about having more capital going in.”
Simplify Medical is a cervical disc replacement designed to preserve natural motion post-surgery, and is composed of non-metallic materials. This means MRI scans can be used for follow-up investigations, instead of CT scans – reducing radiation exposure to patients.
The strategy is to buy out-of-favour medical device businesses and move them to Australia, where they can access research and development rebates from the Federal Government.
Australia gives a rebate of 43.5 cents in the dollar for medical research and development spend.
In the US, investors have lost enthusiasm for the medical devices sector because of the long wait needed for new device approvals.
“This is third one where we’ve done a reverse brain drain,” Carnegie says.
“For the value buyer, to be able to get something from anywhere from 2 cents in the dollars to 5 cents in the dollar, it’s unbelievable.
“This one we bought for $2 million and the balance sheet put it at $100 million — that is how much venture capital has gone into it.”
Carnegie says investors have been keen to support the deals once they’re in Australia and under development to unleash full potential.
Cardiac Dimensions was bought for $5 million and needed another $30 million to fully develop. Investors tipped in $60 million.
The general complaint in Australia is that as soon as a startup becomes valuable, it’s moved to American to attract more funding.
“Everyone’s saying these things are going to Silicon Valley but at the same time we’re essentially in a small battle on a small front trying to do the reverse,” Carnegie says.
“But the window is going to close. The Americans will wake up.”
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